With Rise In Wheat Prices, Food Prices Threatened

Wheat prices continue to rise as Russia has set a ban on the exports of the crop. White hit a 23-month high of $8.25 and the price could go higher. It is not clear if yields from farms, particularly in Canada and the US, can make up the shortfall. The perception is that demand will outstrip supply this year. Wheat futures are up nearly 25% this week based on that assumption.

The question arises over how much the shortage  is to blame for the run-up and how much comes from simple speculation. In mid-2008, crude futures rose from $80 to $140, and that was not solely the result in an imbalance between supply and demand.Oil prices may have been artificially inflated, but that did not keep gasoline prices from spiking and that undercut profits in fuel-dependent sectors like airlines. It also took gasoline prices to over $4 a gallon, which made life for average Americans even worse than the recession alone.

Crude prices moved back down as speculators took profits.

The price of wheat will cause at least temporary inflation in food prices including bread and cereals. Inflation in the US is low now, but so is the rate at which real wages are growing. Any cost burden put on consumers due to higher food prices is likely to cut purchases of other goods and services.

The government and commodity exchanges usually look at speculation well after the fact. In the case of wheat prices, they may not want to wait.

Douglas A. McIntyre